Year's End

As the year began I took a walking tour along the Monterey rec trail in search of the next great depression, and failed to find it. Instead I found myself captivated by the beautiful coastline, and people simply out enjoying the lovely weather that day. ( A link to that article is here. ) Like the hard bed of granite the Monterey Peninsula rests on, there was simply too much wealth and relative affluence in this area to be worn down by the waves of recession I had been writing about in my biweekly articles.

While unemployment peaked here in March at 16.2%, it has since come down, and is currently 12.1%, and much of that is because the county encompasses interior valley cities like Salinas, and smaller communities like Chualar, San Ardo, Las Lomas, Moss Landing, and Gonzales, where the unemployment rate is over 25%. In the more affluent cities like Carmel, Pacific Grove and Monterey itself, the employment situation is fairly stable.

But each week the owners of small farms in the valley make the rounds, going from one Farmer's Market in the county to another, trading their produce for much needed cash. And lately, without any effort on my part to look for it, the recession has bumped into me in odd places--outside big chain stores, inside quaint restaurants, and even on the street curbside of relatively upscale residential districts.

I was having breakfast at a popular haunt in P.G. the other day, and could not help but overhear the conversation of a couple at the next table, bemoaning their withered budget this Christmas, and wondering how they would get through--even afford their simple breakfast together. When it came time to receive the bill, however, the waiter instead told them that the party at another table had picked up their tab. Quite surprised at this, the couple got up, went over to the other table, and the gentleman said "so how can I earn my breakfast?" They both offered their warm thanks, and shook hands all around, exchanging good holiday wishes.

You don't see many homeless in this area, but lately the few I do notice have come up from their haunts on the coastal areas, into the city. They come to the Farmer's Market to beg for food, and the other night an old gentleman was standing outside the local CVS store, catching the warm air as the automatic door opened on a chilly night, and asking for help--just a dollar.

Then, later that same evening, when I went out to deposit a water container in the recycling bin, I heard what I thought was another resident doing the same. Instead it was a couple, younger man and an older woman, perhaps his mother, rooting out bottles from the bins, obviously to redeem them for cash at the Nob Hill recyclers.

I haven't lived in the area long, but I can say that these scenarios are rare here in a region that largely offers a host of touristy shops, boutiques, and art galleries. The recession is still not easy to find here, though it is starting to show up in these unexpected ways. Well... thank god for the kind hearts that paid that couple's bill!

A year later I end my article rants on the economy with another "time to smell the roses" piece where I take in a sunrise and sunset in this beautiful place. In spite of all I process about the economy, such moments carry the real essence of what's important in life. So join me for a sunrise and sunset over Monterey Bay, and forget the recession for a while as Christmas draws near. Last January I wrote:

"Life was getting on with its business all around me, and whether or not that was happening in the limited reality of retail stores and restaurants could not define the enormity of this constant activity and change that was everywhere apparent. See what an hour on a bench by the sea will do for you! The swells of the sea and the breaking of waves in endless variability have a way of instilling thoughts like these. Was I a lost soul, forlorn, trapped in Paradise and waiting for the next Great Depression? Not in any way. You can’t watch the gulls convening on the rocks with the sea lions, without a seeming care in the world, and still hold to fast to your own inner demons. No, this place is a balm for the soul. So instead of thinking about the war in Gaza, or the sagging economy, or the people and places I left behind me to come here, I watched two lovebirds pirouette about one another near the edge of the waves and realized that love is everywhere around me, if only I take the time to look. Even the rocks by the sea embraced one another in a sweet kiss. Something tells me that Great Depression or no Great Depression, I will be happy here in Paradise."

A year later I can report the same sense of happiness and inner peace is well rooted in my heart. I hope you discover a way to find your own peace and tranquility this holiday season, and wish you all the best.

Protect the Principal

As banks like BofA and Citigroup scramble to sell shares to raise cash for a partial TARP payback before Christmas bonus time, you can chalk up yet another victory for the banking industry and their legion of lobbyists on the Hill. Reuters reported today: "In a win for the banking industry, the U.S. House of Representatives voted on Friday to reject a measure that would have allowed bankruptcy judges to change the terms of mortgages for distressed homeowners." Link (Known as the "Cramdown measure")

Banks want to make sure none of that mortgage principal is diminished in any way, money that was simply created at the time of the loan by the bank. (The loan was not necessarily made from existing customer deposits thanks to the miracle of 'fractional reserve lending'. The money was just created by keystroke. Banks "create" ten times their actual cash reserves in loans.)

"Protect the principal" is a cardinal rule of banking. First you just create the money as above, then you structure a 30 year mortgage so that the greatest portion of every payment is in interest. This is set up so that it will take the borrower at least 15 years before any meaningful reduction is made on the principal, and by the 15th year the bank has collected about 95% of the interest on the loan. For credit cards the practice of protecting the principal was a shell game of capping the high interest purchases with clever low interest balance transfer and cash check offers. Then any time a payment was made on the account they would apply it first to the low interest cap shielding the high interest balances beneath it. They are hell bent to protect the principal on those shady loans at any cost.

This time the cost of protecting the principal on billions in bad home loans was fairly cheap, just a few million paid to good lobbyists, and some generous campaign contributions. Such a deal! Since banks no longer have to mark a loan to its current market value, they can carry it at full value on their books in the asset column, even though the property has actually lost 40% of its value and the "distressed homeowner" has lost all their down payment and equity, and is deep underwater. Some had turned to the bankruptcy courts asking the judge to mark down their loan to current real market value. But now a bankruptcy judge cannot "mark to market" either. The banking industry simply invaded "the people's chamber" in the house, and made sure the "people's representatives" all voted for the banks to defeat the infamous "cramdown measure."

So the House voted today and said the people will pay, while the banks still play. Meanwhile, the Wall Street Journal reported today that kids on Santa's lap have been asking for necessities like shoes, eyeglasses and a job for dad, not toys. Ain't democracy wonderful?

Blue Light Special

No, it wasn't a sale at K-Mart trying to stampede shoppers, but a strange phenomenon appeared over the skies of Norway last night, seen and photographed by thousands all across the region. World News reported: "The mystery began when a blue light seemed to soar up from behind a mountain in the north of the country. It stopped mid-air, then began to move in circles. Within seconds a giant spiral had covered the entire sky. Then a green-blue beam of light shot out from its center - lasting for ten to 12 minutes before disappearing completely." Astrologers, scientists, government authorities and military were baffled. Speculation ranged from a strange effect of the northern lights to a mini-black hole cause by the particle collider at Cern.

The suggestion that it was a Russian missile gone awry was quickly quashed by Russian military, though that has to be taken with a grain of salt. SpaceWeather.com, reported the “evidence is mounting” that the sky show was the product of a Russian missile launch. UPDATE: I exchanged a few emails last night with a close friend speculating that this was a failed missile off a Russian sub in the White Sea. This morning the mystery was solved when the Times online reported: "The Bulava missile was test-fired from the Dmitry Donskoi, a submarine, in the White Sea before dawn yesterday but failed at the third stage, the Russian defense ministry said in a statement."

Low light photos taken of the event show the dramatic spiral, which was actually rotating, and the eerie blue light emanating from the center.

More dramatic when it first appeared, the later stages of the event did appear to be a failed missile launch. So tuck this one away in your X-Files, somewhere after crop circles and before worm holes. Mulder will be up all night, but it was much ado about nothing.

Filling the Empty Space

Under the heading of "Big Trouble in Little Dubai" the Business Insider listed the following headlines today:
- Dubai Shows What A Property Plunge Really Looks Like
- Massive Selling Before Dubai Debacle Means Inside Information Was Leaked
- Dubai Sheikh Calls International Investors A Bunch Of Suckers

Gotta love that Sheikh, eh? And the Martha Stewart that "insiders" pulled before the story broke was oh so typical. We've been reading similar stories about our own miraculous stock rally the last few months. "Insiders" are reportedly selling 17 shares for every one they buy, with the heaviest action coming from the CEO executive class. The rats are fleeing the ship. What is it they know that the rally cheerleaders on MSNBC don't know?

But Business Insider showed that you don't have to go too far to see what a commercial real estate property collapse looks like. In the South Bay Area, the fabled "Silicon Valley" they report cavernous vacancy rates in office complexes, (20.5%) and R&D centers (18.9%). In neighboring Sunnyvale the vacancy rates exceed 50%! In many places there are entire developments sitting empty and abandoned. What a waste. Yet I wrote extensively about ways such space could be used to foster the growth of a new grass roots economy if landlords would just get off the old "First, Last, Security Deposit and Lease" model. Here's what I suggest:

What if all the vacant commercial space in the business parks could be turned into co-ops open to anyone to come and utilize space and resources for business purposes? Each building could cater to a given area of the economy. There could be a computer co-op where people offering PC skills, graphic artists, web designers, writers, photographers congregate to offer their services in otherwise vacant office buildings. There are thousands with skills but without the money to open and finance a business along traditional lines. And there are thousands more who will be losing traditional jobs—people who have a wide range of skills. A commercial co-op creates a business community center focused on its defined skill set. People can come to the center to take advantage of the space for meetings, to use computers and other peripherals, to find other talented artists, image specialists or designers, locate a network guru. They could sell, trade or barter services, and the property owner just charges a set fee for daily or weekly access to the entire co-op.

Imagine a center like this focused exclusively on clothing, where women could come and make their own clothing, buy the necessary cloth, access sewing machines, or just sell or trade items from their own wardrobe. The way women love to dress, shop, and network with one another would see a place like this explode with activity in no time at all. Now expand the idea to include maintenance services in the blue collar sector where all the laid off construction guys can come and join mechanics, plumbers, electricians in a co-op. Imagine an electronics bazaar where people can bring their TVs, audio equipment, cameras, iPods, cell phones, computers, Playstations and then buy, sell or trade. Our households are overflowing with this stuff anyway, and because they won’t have money to buy new, people will adapt and “make do” with existing products. The idea of planned obsolescence, constant upgrading, and throwing the old away will give way to frugality, reusing the old, making do with what you have. Imagine a food co-op selling home made everything: pastries, pies, jams, home grown and home canned foods. Imagine a place like the existing antique stores one usually finds in the more distressed parts of most towns, co-ops where people can come to sell or barter anything. Imagine a permanent Farmer's Market, not the one day events we see in many towns now.

How does the property owner make money? Instead of collecting rent from a single tenant, he uses the Realtor and his agents and brokers as property managers for the co-ops. They collect revenues by just issuing access passes to anyone using the facilities, either day passes, or weekly or monthly passes--in amounts people can easily afford. The idea is to get the space thriving with activity, for it is this activity that will generate the revenue return for the agent and owner over time. Americans are already familiar with the shopping club concept. They have membership cards to large warehouse stores where they look to buy new goods cheap. The same idea can be applied to buying, selling or trading existing goods when people don’t have money to even to visit “Price Club” any longer. Think of it as a local eBay, right in your otherwise abandoned business park. The Property manager deducts their fee, and the rest goes to the property owner. The more active the co-op is, the greater the revenues, which could easily exceed amounts collected under a more traditional lease/rent agreement.

The economy will eventually evolve into these arrangements anyway, with bartering, flea markets, garage sales, farmers markets, co-ops taking the place of big box stores, shopping centers and malls. People will adopt these behaviors on their own because they will be forced to. Now is the time for enterprising men and women to see the opportunity in a distressed economy and build the new pathway to real recovery.

Misguided Notions

Afghanistan...a seemingly endless war in the midst of a strategically placed wasteland of poppy fields, smuggling routes and prime pipeline real estate. That's what the war there is really all about, not the imminent threat of terrorists rising like a dark shadow over America because they will have a "safe haven" there to plan their misdeeds. I feel compelled to offer up this footnote to Mr. Obama, just as I offered it to the former Commander in Chief. Terrorists do not need trackless wastelands and inaccessible mountain hideouts to plot and plan their attacks. A hotel room in Karachi will do just fine.

So what is the vital interest President Obama mentions that compels us to extend the war there another 18 months? I can't find one, unless the control of the poppy fields and pipeline projects is still the trump card, or the need to have strong U.S. military presence in Central Asia for purposes of power projection in oil rich regions.

Face it... What we have here is just another surge and purge strategy that will have little or no impact on the long term viability of Afghanistan as a Western controlled or friendly state. The Taliban will wait it out and get back to business as usual after we leave...if we ever do leave. We have been there since 2001--eight years that will soon extend to a decade of military involvement. After all our effort there we still need 30,000 more troops? (That's two full divisions, or 20% of our standing land army of 10 divisions).

Again we get the grossly misguided notion that the vital threat to the US is some nefarious Taliban plotting in the hills. Does anyone in the White House read? The gravest threat to the nation lies not in Afghanistan, but in the plush halls of the Federal Reserve and all the other corrupt financial institutions that have driven the nation into a tar pit of insolvency.

Give me 30,000 federal prosecutors to root out the shady securities and derivatives deals, the fradulent real estate lending schemes, the quiet flow of billions from the public trust to pay off the losses of fat cat "investors." The banking system has done more harm to this nation than 1000 Osama Bin Ladins. We have no vital interest in Afghanistan, but fail to see how desperately we need reform and a purge of the corruption right here at home.

President Obama is misguided. Change.gov has become "same as the above." We have seen no real change from Obama, just a continuation of the Fed and Treasury dominated economic policy, and a sad continuation of the Bush war policy, invoking 9/11, and high sounding words about "freedom" and "our values" from an eloquent president that has done nothing but watch his approval rating drop along with the value of the U.S. dollar. (Down 22% since March of this year!)

"There is a time in the affairs of men which, taken at the flood, leads on to fortune." Sadly, Obama could have brought real change to our nation, but he missed his moment and remained content to drift languidly along with the tide.

I want my vote back.

Bye, Bye Dubai

Dubai: the lavish playground of the rich in the midst of barren desert--what a metaphor for the great disparity of wealth on this planet. For years the oil rich investors of Dubai have been building man made islands in the shape of palm trees, and the world itself, and constructing mazes of condos, shops and other commercial developments, including a project to build the world's tallest building, the Burj Dubai. You would think the "folks" who showed the world how easy it was to knock down tall buildings would be a little more discrete in the land that invented modern forms of terrorism and the art of hijacking and using airliners as lethal weapons. But bigger was reflexively assumed to be better in Dubai. The fantasy land theme park they built dubbed "Dubai World" is twice the size of the city of San Francisco!

The NY Times reported: "Now that the boom has gone bust, both in Dubai and in the United States, Dubai is stuck with a glut of real estate that no one wants to buy or rent." Sound familiar? When the fat cat "investors" found they had big rollover payments due on nearly $60 billion in loans, payments they could not make or refinance, banks the world over were suddenly scrambling to see what their exposure was on a possible default. Neighboring Abu Dhabi was considering which investments it might bail out, if any.

The message we should take from Dubai is not simply one of an extravagent and decadent investment gone bad, and rightfully so. Dubai is just the tip of the iceberg for commercial projects all over the world that will soon be desperate for finance as their own debt rollover dates tick off in the months ahead. Dubai is but the churning white froth at the crest of a wave of impending commercial real estate defaults now bearing down on the banking systems of the world. It is a problem twice the size of the "sub prime" mess in residential real estate. Watch commercial RE collapse in spectacular fashion in 2010-12. Just think of that amazing scene in the movie 2012 as most of Southern California slides into the sea. Far from being over, this depression is really just beginning to gather steam.

For now, however, take this one maxim to heart, especially when you hear the phrase too big to fail: "The bigger they are, the harder they fall." The world trade center showed us that in spectacular fashion. How soon we forget.